Wagner v. Farmers Ins. Exchange, 890316-CA

Decision Date09 January 1990
Docket NumberNo. 890316-CA,890316-CA
Citation786 P.2d 763
PartiesKelly WAGNER, Plaintiff and Appellant, v. FARMERS INSURANCE EXCHANGE, Defendant and Respondent.
CourtUtah Court of Appeals

M. David Eckersley, Salt Lake City, for plaintiff and appellant.

Don J. Hanson, Salt Lake City, for defendant and respondent.


GARFF, Judge:

Appellant Kelly Wagner, the surviving spouse of Thomas Wagner (Wagner), sought a declaratory judgment that she is entitled to uninsured motorist benefits in the amount of $100,000 pursuant to an insurance contract entered into between Wagner and respondent Farmers Insurance Exchange. The district court granted summary judgment to respondent. We affirm.

Wagner entered into an insurance contract with respondent to insure his 1979 Porsche 928. This contract named Wagner as the insured party and provided liability and uninsured motorist coverage.

On November 15, 1986, Wagner died as a result of injuries received in a single vehicle automobile accident. At the time of the accident, he was riding as a passenger in his insured Porsche, while Charles P. Lingle, who had no liability insurance, was driving with Wagner's permission. The accident was caused by Lingle's negligence.

Respondent paid Wagner's medical expenses, and funeral and death benefits under the no-fault provisions of the policy. It also offered to pay appellant $20,000 under the liability portion of the policy rather than $100,000, the face amount of the policy, for Wagner's death. Appellant rejected this offer and brought this declaratory judgment action, demanding the entire $100,000. Both parties, relying upon stipulated facts, submitted the case on cross-motions for summary judgment. The trial court ruled in favor of respondent. Appellant then brought this appeal.

The sole issue appellant raises is whether the provisions of the insurance policy which excluded coverage should be voided as against public policy because Wagner reasonably expected to be covered in such a situation when he purchased the policy. She argues that insurance policies are not typical contracts in which the terms are bargained for by the parties but are, instead, contracts of adhesion. She also argues that purchasers commonly expect to be fully covered by the insurance they buy, so the insurance contract should be essentially rewritten to fulfill Wagner's reasonable expectation of coverage.

On the other hand, respondent argues that an insurance policy is a contract and the written provisions should control unless: (1) the provisions are illegal or against public policy; (2) the provisions are ambiguous; or (3) one of the parties has misrepresented the provisions of the policy, leading the other party to have different expectations than the terms of the policy would dictate. Respondent asserts that none of these conditions are present here.

"[I]n the absence of ambiguity, we interpret the terms of an insurance policy according to their plain meaning." Valley An insurer may limit its obligation to provide coverage by "exclusions phrased in language which clearly and unmistakably communicates to the insured the specific circumstances under which the expected coverage will not be provided." Reserve Ins. Co. v. Pisciotta, 30 Cal.3d 800, 640 P.2d 764, 769, 180 Cal.Rptr. 628 (1982).

Bank & Trust Co. v. United States Life Title Ins. Co., 776 P.2d 933, 936 (Utah Ct.App.1989); see also Bear River Mut. Ins. Co. v. Wright, 770 P.2d 1019, 1020 (Utah Ct.App.1989) (per curiam). Where an ambiguity appears in the terms of a policy, especially in an exclusion from coverage, we examine the language from the viewpoint of the average purchaser of insurance who is not trained in law or in the insurance business. State Farm Mut. Auto. Ins. Co. v. Gibbs, 139 Ariz. 274, 678 P.2d 459, 464 (Ct.App.1983); see also Draughon v. CUNA Mut. Ins. Soc'y, 771 P.2d 1105, 1108 (Utah Ct.App.1989). However, we construe any ambiguity in an insurance policy against the insurer and in favor of coverage. LDS Hosp. v. Capitol Life Ins. Co., 765 P.2d 857, 858 (Utah 1988).

Wagner's insurance policy, written in a so-called "E-Z Reader" style, excludes "liability for bodily injury to an insured person" under its liability coverage section. Because this section defines an "insured person" as "[y]ou or any family member," Wagner, as the named insured, was excluded from coverage. This exclusion is clearly labelled and clearly stated.

Under the policy's uninsured motorist coverage section, respondent is obligated to "pay all sums which an insured person is legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by the insured person." (Emphasis added.) This obligation is limited by the requirement that "[t]he bodily injury must be caused by accident and arise out of the ownership, maintenance or use of the uninsured motor vehicle." (Emphasis added.) An "insured person" is defined in this section as "[y]ou or a family member," or "[a]ny other person while occupying your insured car." Thus, both Wagner and Lingle qualify as insured persons.

The general definitions describe an "insured vehicle" as "[t]he vehicle described in the Declarations of this policy or any private passenger or utility car with which you replace it." This section defines an "uninsured motor vehicle" as "a motor vehicle which is "[n]ot insured by a bodily injury liability bond or policy at the time of the accident." Under these definitions, Wagner's vehicle, because it was insured under this policy at the time of the accident, is not an "uninsured vehicle."

These provisions are clearly stated and do not contemplate the possibility of the insured vehicle also being the uninsured vehicle. Under these provisions, respondent is not obligated to pay for Wagner's damages.

However, under the "Other Insurance" provision of the liability coverage, respondent agrees to "provide insurance for an insured person, other than you or a family member, up to the limits of the Financial Responsibility Law only." 1 Under the definition of an "insured person" in the liability coverage section, Lingle is an insured person who would be legally liable for Wagner's injuries and death. Because Lingle qualifies as an "insured person," and is not Wagner or a family member, respondent is liable to pay $20,000, the minimum statutory amount of coverage, to appellant on Lingle's behalf. It is undisputed that respondent has offered to pay appellant $20,000 under this provision of the policy.

We find that the exclusions to coverage under this policy are clearly stated and that Wagner knew or should have known about them, and that respondent offered to pay appellant according to the terms of the contract.

We recognize that "automobile insurance is generally sold through adhesion contracts that are not negotiated at arm's length," 2 and that "[p]urchasers commonly rely on the assumption that they are fully covered by the insurance that they buy." Farmers Ins. Exch. v. Call, 712 P.2d 231, 236 (Utah 1985); see also Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 682 P.2d 388, 395 (1984) (en banc). Where possible, we attempt to give effect to the reasonable expectations of the insured party. 3

"[T]he reasonable expectations concept is quite troublesome, since most insureds develop a 'reasonable expectation' that every loss will be covered by their policy." Id. However, because of the necessity to balance this expectation against the need to keep the cost of insurance premiums relatively stable, its application must be limited. See Allstate Ins. Co. v. United States Fidelity & Guar. Co., 619 P.2d 329, 333 (Utah 1980); see also Zobrist v. Farmers Ins. Exch., 103 Nev. 104, 734 P.2d 699, 700 (1987) (per curiam). 4

There are circumstances when the reasonable expections of the insured may counteract a clear exclusion in the policy. See State Farm Mut. Auto. Ins. Co. v. Mastbaum, 748 P.2d 1042, 1047 (Utah 1987) (Durham, J., dissenting). In Gray v. Zurich Insurance Co., 54 Cal.Rptr. at 104, 419 P.2d at 168, the California Supreme Court reasoned:

Although courts have long followed the basic precept that they would look to the words of the contract to find the meaning which the parties expected from them, they have also applied the doctrine of the adhesion contract to insurance policies, holding that in view of the disparate bargaining status of the parties we must ascertain that meaning of the contract which the insured would reasonably expect.

Id. 54 Cal.Rptr. at 107-08, 419 P.2d at 171-72 (footnotes omitted).

Provisions that are against public policy or against the reasonable expectations of the parties may be found void in appropriate circumstances. However, even this reasonable expectation concept must be limited by something more than "the fervent hope usually engendered by loss," such as the expectations that "have been induced by the making of a promise." Darner Motor Sales, 682 P.2d at 395 (quoting 1 Corbin, Contracts § 1 (1963)). Therefore, in making a judicial determination of such expectations, we examine the following interrelated factors: first, whether the insurer knew or should have known of the insured's expectations; second, whether the insurer created or helped to create these expectations; and third, whether the insured's expectations are reasonable. See Abraham, Judge-Made Law And Judge-Made Insurance: Honoring The Reasonable Expectations Of The Insured, 67 Va.L.Rev. 1151, 1179-80. To accomplish this determination, we examine, in addition to the wording of the contract, "extrinsic matters such as the intent of the parties, the purpose sought to be accomplished, the subject matter of the contract, and circumstances surrounding the issuance of the policy." Bonner County v. Panhandle Rodeo Ass'n, Inc., 101 Idaho 772, 620 P.2d 1102, 1106 (1980); see also Restatement If the evidence...

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